Reinvestment Strategies

Opportunities for borrowers

When it’s the public’s money, you want to make sure you’re making the most of it. Municipal borrowers know this. Yet bond proceeds often are overlooked instead of being reinvested wisely to take advantage of market opportunities.

An example of one of these opportunities is the rise of the two-year Treasury note, which has climbed from 40 basis points to 80 basis points over the past nine months (though it dropped 10 basis points in a day after the Fed’s September decision to leave interest rates unchanged). “This upward trend has enhanced borrowers’ ability to invest project funds and generate higher earnings,” says David Sutton, managing director and head of the Raymond James Reinvestment Strategies group.

The low interest rate environment has prompted investors to look beyond money market accounts for more competitive rates of return. There’s no doubt, however, that it takes expertise to uncover the options available for municipal borrowers. After the global financial crisis of 2008-2009, “numerous investment providers exited the business and the universe of potential providers became narrower,” Mr. Sutton says. “So one now has to think carefully through the targeting of certain investments in certain situations.”

With fewer providers and the strict investment rules of bond covenants, state statutes and federal tax regulations to comply with, maximizing reinvestment takes determination and uncommon insight. Both are in strong supply for the Raymond James Reinvestment Strategies team. “We specialize in identifying hybrid solutions … optimizing investment earnings by finding different points on the yield curve for different providers to potentially take an investment in that better maximizes the results for the client,” Mr. Sutton says.

One of these clients, Colleton County Government in South Carolina, consulted with the Reinvestment Strategies team after Raymond James assisted with the structuring and competitive issuance of $29.7 million worth of general obligation bonds. With the principles of safety, liquidity and yield in mind, the team evaluated options including laddered portfolios and repurchase agreements. Because the bond proceeds are slated to fund 13 projects, the county needed to make multiple draws on a monthly basis and found that flexibility in repurchase agreements.

The group has also seen a spike in demand for escrow refunding transactions as state and local governments look to refinance debt at low interest rates. Clients appreciate their comprehensive approach. “We remind bankers and financial advisors to think about the bond issue more holistically,” says Joseph Birdsong, an analyst in the Reinvestment Strategies group. The team recommends clients start considering investment strategies as soon as possible, allowing them to begin diligently examining the markets for opportunities that fit the clients’ needs and dynamic schedule. “We can also provide real-time data before bond pricing that can lead to a better outcome,” Mr. Birdsong says.

The bottom line is this: Don’t let your bond proceeds languish. The way this money is invested helps determine the overall health of the bond issue. No matter what’s going on in the markets, there are experts who can help put these important public funds to work.